Shipping Line Hyundai Merchant Marine’s Problems Intensify

Date: Monday, December 10, 2018Source: The Wall Street Journal

South Korean flag carrier Hyundai Merchant Marine Co. is set to leave a powerful shipping alliance that guarantees its ships are used to move cargo across the oceans, complicating its efforts to reverse a slide and compete with much bigger rivals.

The container shipping line likely will pull out of the 2M shipping alliance when a tie-up deal expires in early 2020, people with direct knowledge of the matter said. The 2M alliance is run by A.P. Moeller-Maersk A/S and Mediterranean Shipping Co., the world’s two biggest operators, and moves around a third of all containers.

“A divorce is quite likely after the cooperation deal ends in April 2020,“ one of the people said. “HMM is looking to join the rival Ocean Alliance, but there is no guarantee it will happen and its problems will multiply.”

The new challenge for HMM, which has accumulated around $1.6 billion in losses over 14 quarters, comes a month after its top creditor and main shareholder Korea Development Bank warned of management changes unless the carrier moved toward profitability in the coming months.

“HMM tends to resort to the government aid, while a moral hazard is seen among its employees,” KDB Chairman Lee Dong-gull told Korean journalists last month.

A second person involved in the matter said the company was given until March to come up with a new strategy. “If things don’t get better, (Chief Executive) Yoo Chang-keun and his team of senior associates could be replaced,” he said.

“HMM has to provide a report on its performance every week, and we will issue a warning if we don’t see improvement after a month. Three more months will be given to show improvement. If things don’t get better, the staff concerned will have to leave,” Mr. Lee said.

New options include joining the Ocean Alliance, a group consisting of China’s Cosco Shipping Holdings Co., France’s CMA CGM SA and Taiwan’s Evergreen Marine Corp. A second person involved with HMM said the government also is looking at merging HMM with smaller Korean operator SM Line Corp.

The Korean government put its full weight behind HMM following the collapse in 2016 of Hanjin Shipping Co., then the world’s seventh-largest container line and a pillar of the shipping sector that is a key component of the country’s economy. HMM since 2015 has received about $2.5 billion in state aid arranged by KDB.

HMM’s liabilities will stand at around 2.5 trillion won ($2.25 billion) this year, according to the Korea Times citing a report by Samil PricewaterhouseCoopers, and will grow to KRW3.3 billion next year and KRW5.2 trillion in 2020. HMM’s assets are now worth around KRW3 trillion, leaving its debt higher than its assets by 2019.

The shipping line has foundered as it has sought to catch up to bigger rivals. HMM holds just 1.8% of the global shipping market, according to research group Alphaliner Sarl, on par with several regional carriers, but far outside the share of business held by the operators that control the world’s big trading lanes.